Urbanization and financial literacy: the knowledge spillover effect

ABSTRACT

Using the dataset of the 2015 wave of the China Household Finance Survey (CHFS), this paper examines how urbanization influences individuals’ financial literacy. We demonstrate that the financial knowledge of urban natives spills to rural–urban migrants in the process of urbanization and urban agglomeration. We address the potential endogeneity issue by taking advantage of China’s land expropriation policy. Our results are robust to identification regressions and a series of robustness checks. Further mechanism analysis shows that the financial literacy spillover effect works mainly through social networks.

KEYWORDS:

• Urbanization
• Knowledge spillover
• Financial literacy
• Social network

JEL CLASSIFICATION:

• D12
• D83
• O12

Highlights

• Taking advantage of the unique hukou system and land expropriation policy in China, we clearly identify the spillover effect of urbanization on individuals’ financial literacy.

• Social networks are the main channel through which financial literacy spills from urban natives to migrants.

• The longer the migrants stay in urban areas, the larger the financial literacy spillover effect.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed here.

Additional information

Funding

This work was supported by the “Fundamental Research Funds for the Central Universities’ in UIBE (No. CXTD12-01) and ‘Junior Teachers Research Capability Enhancement Program’ in MUC (No. 2021QNPY48).